The front page of today’s Irish Examiner reports that AIB still offers to cover €2,500 per year in gym or golf club expenses on the part of its employees.

AIB is offering to pay employees’ golf club fees and leisure club memberships worth millions of euro every year despite being crippled with debt and facing massive job losses and a likely state takeover.

The crisis-ridden bank confirmed the generous staff perks scheme on the same day it raised interest rates for hard-pressed mortgage holders by half a percent – and just days after it announced record losses of €2 billion for the first half of the year. The interest rate hike will affect approximately 50,000 customers who hold standard variable mortgages. [more]

The piece goes on to say that the scheme is offered to each of the bank’s 12,500 employees in Ireland, as well as the 2,500 it employs in Britain. Up to €2,500, it says, is offered to each employee.

Meanwhile, the bank increased its variable mortgage interest rate from 2.75% to 3.25% yesterday, which will (it is reported) hit about 50,000 mortgage holders with a monthly repayments increase of about €27.

So this morning, after seeing the Examiner‘s lead, I decided to crunch some figures.

In the results it filed in March, for the year ending 31 December 2009, AIB said it had a residential mortgage book valued at about €27.1bn. In layman’s terms, that means that homeowners in Ireland collectively hold mortgages, from AIB, to the tune of €27,100,000,000.

How much of this €27.1bn is lent at a variable rate? Well, that depends on who you ask. This morning’s Irish Times estimates that about 30% of the bank’s mortgages are lent at a variable rate (thanks to Aaron Quigley for alerting me), while Karl Deeter from Irish Mortgage Brokers suggested to me that the variable portfolio amounts to about 20% of the total.

This is where it gets interesting. Yesterday’s Irish Times posited that the 0.5% increase in the interest rate would result in the monthly repayment increasing by €26.96 for every €100,000 outstanding on a borrower’s mortgage.

[Update, 2pm: I’ve crunched more numbers using slightly more mathematical formulae than those in the comments or, presumably, those used by The Irish Times. Using the c = (r / (1 − (1 + r) − N))P formula the monthly repayment works out at €26.96 for every €100,000 outstanding on a 30-year mortgage. The post previously stated an increase of €26.82.]

So, if 30% of AIB’s mortgages are lent at a variable rate (€8.13bn), then AIB stands to make an extra €2,191.848 a month from the increased interest rate – that’s €26.17 million a year. If as Karl suggests the rate is closer to 20% (€5.42bn), it will make €1,461,232 extra per month, or €17.44 a year.

Now let’s go back to the gym membership scheme. Though it’s unlikely, let’s suggest – as well most employees might want to – that every single employee claims their €2,500, there’s a chance that AIB is faced with 15,000 bills for €2,500 every year. That’s €37,500,000 a year for AIB employees to go to the gym or the golf club.

So, if 20% of AIB’s mortgages are at a variable rate, then the amount by which AIB is hitting mortgage holders – the vast majority of whom, we can guess, are in negative equity – doesn’t even cover half of its bill for sending its employees to the gym or golf club.

Let me repeat that. AIB is increasing its mortgage interest rates, when potentially more than double the amount it will make is being offered to send its employees to the gym every year.

It will take at the very least 17.10 months, and at most 25.66 months, for the increased mortgage rates to cover AIB’s annual cost for the scheme.

So the difference would be €266.88 – €226.33 = €40.55 per month for every €100,000 owed.
Then plugging that in: (8,130,000,000 / 100,000 * €40.55) = €3,296,715 per month, or €39,560,580 a year.

Again, I’m not sure where the Irish Times plucked their figure from, but either way if the scheme costs them €37.5m a year and the interest rate increase makes just about that much, I think it’s still pretty scandalous. Plus, this is an estimate at the higher boundary – if the variable loans account for 20%, then you’re looking at €26,373,720 a year.

Read page 48 of this. Other personnel costs are only 3% of gross wages & salaries. Also as you can see those costs were halved from 2008 to 2009.

I think it’s important to be as practical and reasonable as possible when comparing figures – and take a calculator out when you read figures in a newspaper – they are notorious at reporting wrong figures (or figures out of context).

I got the stat from the 2009 filings earlier, yeah. I agree that AIB have clearly made an effort to curb their associated expenses but the fact that an interest rate increase – which could genuinely lead to many young people being foreclosed – could be entirely gobbled up by a benefit-in-kind scheme which by anyone’s measure is quite luxurious is a little sickening.

Agree with you Gav, however CEO Colm Doherty has only been in the top spot since November from Capital Markets and restructuring the perks while an important PR exercise is probably on the long finger until we can get a bit more stability in the economy.

not to be pedantic, but the 20% I mentioned is in terms of the value of the book not the number of mortgages which may be what the 30% refers to, because a large number of smaller loans could still equal 20% of the volume (hope that makes sense!)

That is beside the point though, any way that you work it out the demonstration is clear: the bank is willing to cut into their customers much quicker than into the operational costs that the rate hikes support. Surely it would be better from a shareholders perspective (and the state, thus all taxpayers are shareholders) to see efficiency measures brought in? I have no issue with a bank that fires people, but I’d hate a bank thank increased my mortgage, and international investors would cheer some layoffs more than a rate hike, it would be hard evidence that AIB is making the tough decisions.

We’ll accept that they lack the mettle, at least make the tough decision of not paying gym fees!

Matt – thanks for the comment; I’m not saying Doherty is at all to blame for it, and obviously things take time; it’s simply an unfortunate fact that pulling the employee perks (messy and all as that would be, given the fact it’s probably rolled into many employment contracts) could have helped AIB defer the increase for a few months if not a few years. It’s assumed there’ll be another hike on the way in a few months – there’s simply little defending the idea that another raise could be brought in without pulling this frivolous scheme rankers a little.

Karl – Thanks for the feedback; I understand what you mean about how 20% of the loans could account of 30% of the volume – obviously you know now that I meant monetary proportion rather than unit. Thanks for the kind words all the same!

Gav, I ain’t no fan of AIB – I can’t stand them – but stating “offers to cover €2,500 per year in gym or golf club expenses” is way off the mark in my experience. Firstly, an AIB employee has to pay and make a claim, and most don’t, so you need to dig a bit deeper to get the real meat. I reckon it is multiples of €2,500 offered to the senior ranks.

Jerome – thanks for your comment (I hope you don’t mind that I moved it to the appropriate post).

I think whether AIB has to pay for the scheme in the first place or compensate the workers if they claim for it afterwards is irrelevant – regardless of the methodology of how it pays, the bank is footing the bills for the employees.

Is there anything to suggest that senior staff are being given more than the €2,500 allowance?

Great post! not to be pedantic, but the 20% I mentioned is in terms of the value of the book not the number of mortgages which may be what the 30% refers to, because a large number of smaller loans could still equal 20% of the volume (hope that makes sense!) That is beside the point though, any way that you work it out the demonstration is clear: the bank is willing to cut into their customers much quicker than into the operational costs that the rate hikes support. Surely it would be better from a shareholders perspective (and the state, thus all taxpayers are shareholders) to see efficiency measures brought in? I have no issue with a bank that fires people, but I’d hate a bank thank increased my mortgage, and international investors would cheer some layoffs more than a rate hike, it would be hard evidence that AIB is making the tough decisions. We’ll accept that they lack the mettle, at least make the tough decision of not paying gym fees!